Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 6 — Deduction from annual payments and patent royalties
445

Duty to deduct from annual payments
900
Deduction from commercial payments made by individuals
(1)
This section applies to any payment made in a tax year if—
(a)
it is a qualifying annual payment,
(b)
the person who makes it is an individual, and
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(c)
it is made for genuine commercial reasons in connection with the
individual’s trade, profession or vocation.
(2)
The individual must, on making the payment, deduct from it a sum
representing income tax on it at the basic rate in force for the tax year.
(3)
Income tax equal to the sum required to be deducted is to be collected through
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the individual’s self-assessment return (see Chapter 17).
901
Deduction from annual payments made by other persons
(1)
This section applies to any payment made in a tax year if—
(a)
it is a qualifying annual payment, and
(b)
the person who makes it is not an individual.
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(2)
But this section does not apply if—
(a)
an individual’s personal representatives make the payment,
(b)
the individual would have been liable to make it if the individual had
not died, and
(c)
the payment would not have been made for genuine commercial
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reasons in connection with the individual’s trade, profession or
vocation, had it been made by the individual.
(3)
If the person who makes the payment has some modified net income for the tax
year (see section 1025)—
(a)
the person must, on making it, deduct from it a sum representing
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income tax on it at the basic rate in force for the tax year, and
(b)
income tax equal to the sum required to be deducted is to be collected
through the person’s self-assessment return (see Chapter 17).
(4)
If the person who makes the payment has no modified net income for the tax
year the person by or through whom the payment is made must, on making it,
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deduct from it a sum representing income tax on it at the applicable rate (see
section 902).
(5)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under subsection (4)—
(a)
see Chapter 15 if the person making the payment is a UK resident
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company, and
(b)
otherwise see Chapter 16.
902
Meaning of “applicable rate” in section 901
(1)
This section gives the meaning of “applicable rate” in section 901(4).
(2)
Except in the case dealt with in subsection (3), the applicable rate is the basic
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rate in force for the tax year in which the payment is made.

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 6 — Deduction from annual payments and patent royalties
446

(3)
If the payment—
(a)
is an annuity payment under a purchased life annuity, and
(b)
meets the condition in subsection (4),

the applicable rate is the savings rate in force for the tax year in which the
payment is made.
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(4)
The condition is that the payment either—
(a)
is savings income, or
(b)
would be savings income, if it were the income of an individual within
the charge to income tax.
(5)
In this section “purchased life annuity” has the meaning given by section 423
10
of ITTOIA 2005.
Duty to deduct from patent royalties
903
Deduction from patent royalties
(1)
This section applies to any payment made in a tax year if—
(a)
it is a payment of a royalty or other sum in respect of the use of a patent,
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and
(b)
it meets the conditions in subsections (2) to (4).
(2)
The payment must not be—
(a)
a qualifying annual payment, or
(b)
an annual payment to which section 904 applies (annual payments for
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dividends or non-taxable consideration).
(3)
The payment must arise in the United Kingdom.
(4)
The payment must be one that is charged to income tax or corporation tax.
(5)
If the person who makes the payment is an individual—
(a)
the person must, on making the payment, deduct from it a sum
25
representing income tax on it at the basic rate in force for the tax year,
and
(b)
income tax equal to the sum required to be deducted is to be collected
through the person’s self-assessment return (see Chapter 17).
(6)
If the person who makes the payment is not an individual, and has some
30
modified net income for the tax year (see section 1025)—
(a)
the person must, on making the payment, deduct from it a sum
representing income tax on it at the basic rate in force for the tax year,
and
(b)
income tax equal to the sum required to be deducted is to be collected
35
through the person’s self-assessment return (see Chapter 17).
(7)
If the person who makes the payment—
(a)
is not an individual, and
(b)
has no modified net income for the tax year,

the person by or through whom the payment is made must, on making it,
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deduct from it a sum representing income tax on it at the basic rate in force for
the tax year.

Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 6 — Deduction from annual payments and patent royalties
447

(8)
See Chapter 8 which makes special provision in relation to royalties (double
taxation arrangements: deduction at treaty rate and EU companies: discretion
to pay gross).
(9)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under subsection (7)—
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(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
(b)
otherwise see Chapter 16.
Supplementary
904
Annual payments for dividends or non-taxable consideration
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(1)
For the purposes of section 899(5)(f) and 903(2)(b) this section applies to an
annual payment which meets the conditions in subsections (2) to (7).
(2)
The payment must be a payment charged to—
(a)
income tax under Part 5 of ITTOIA 2005, or
(b)
corporation tax under Case III of Schedule D.
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(3)
The payment must be made under a liability incurred for consideration in
money or money’s worth all or any of which—
(a)
consists of a dividend or the right to receive a dividend, or
(b)
is not required to be brought into account in calculating for the
purposes of income tax or corporation tax the income of the person
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making the payment.
(4)
The payment must not be a payment of income—
(a)
which arises under a settlement made by one party to a marriage or
civil partnership by way of provision for the other—
(i)
after the dissolution or annulment of the marriage or civil
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partnership, or
(ii)
while they are separated under an order of a court, or under a
separation agreement, or if the separation is likely to be
permanent, and
(b)
which is payable to, or applicable for the benefit of, the other party.
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(5)
The payment must not be made by an individual for genuine commercial
reasons in connection with the individual’s trade, profession or vocation.
(6)
The payment must not be made to an individual under a liability incurred at
any time in consideration of the individual surrendering, assigning or
releasing an interest in settled property to or in favour of a person with a
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subsequent interest.
(7)
The payment must not be a payment of an annuity granted in the ordinary
course of a business of granting annuities.
(8)
In the application of this section to Scotland the reference in subsection (6) to
settled property is to be read as a reference to property held in trust.
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Income Tax Bill
Part 15 — Deduction of income tax at source
Chapter 7 — Deduction from other payments connected with intellectual property
448

905
Interpretation of Chapter
In this Chapter “individual” includes a Scottish partnership if at least one
partner is an individual.
Chapter 7
Deduction from other payments connected with intellectual property
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Certain royalties etc where usual place of abode of owner is abroad
906
Certain royalties etc where usual place of abode of owner is abroad
(1)
This section applies to any payment made in a tax year if—
(a)
it is a payment of any royalties, or sums payable periodically, in respect
of a relevant intellectual property right (see section 907),
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(b)
it is one that is charged to income tax or corporation tax, and
(c)
condition A or B is met.
(2)
Condition A is that the usual place of abode of the owner of the right is outside
the United Kingdom.
(3)
Condition B is that—
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(a)
a person (“the seller”) has assigned the right to another person,
(b)
the usual place of abode of the seller is outside the United Kingdom,
(c)
the seller is entitled to periodical payments in respect of the right, and
(d)
the payments are in respect of that entitlement.
(4)
But this section does not apply if the payment is made in respect of copies of
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works, or articles, which have been exported from the United Kingdom for
distribution outside the United Kingdom.
(5)
The person by or through whom the payment is made must, on making it,
deduct from it a sum representing income tax on it at the basic rate in force for
the tax year.
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(6)
See—
(a)
Chapter 8 which makes special provision in relation to royalties
(double taxation arrangements: deduction at treaty rate and EU
companies: discretion to pay gross), and
(b)
Chapter 11 (payments between companies etc) for an exception from
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the duty to deduct sums representing income tax under this section.
(7)
For provision about the collection of income tax in respect of a payment from
which a sum must be deducted under this section—
(a)
see Chapter 15 if the person making the payment is a UK resident
company, and
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(b)
otherwise see Chapter 16.
(8)
If a payment to which this section applies is also one to which a provision of
Chapter 6 applies, it is treated as not being a payment to which a provision of
Chapter 6 applies.